Reasons Why US Gasoline Prices Vary in Different States

Prices of retail gasoline have sharply increased this present year as crude oil price reached its record breaking high levels. And as many American consumers are feeling the effect of high gasoline prices, they are also seeing varying prices in different places all over the United States. For example, drivers in Colorado are paying just above $3, compared Californian drivers who are spending $4.33 per gallon for gas. As such, consumers can’t help but wonder why this is so.

Tom Kloza, OPIS energy analyst, says that the difference between crude oil prices globally is the main cause of the differences in crude and gasoline prices. He said that there has never been this much diversity in the cost of crude and gas.

The variations in gasoline prices results from the widely divergent wholesale costs of gasoline. For example, wholesale prices of Midwest gasoline and the Rocky Mountains float around 20 to 49 cents lower compared to the East Coast. The reason for this is that crude oil can be processed in the Midwest at $30 lower compared to the East.

Refined fuel prices show supply issues facing refiners in different areas of the country according to the grade of oil being used. Crude oil in several of Midwest’s landlocked states like North Dakota, where, recently, a great surge in supplies has occured, reached a per barrel price of around $95 to $96. As for Midwest refineries utilizing sour crude, the heavy grade Western Canadian Select crude, the cost is almost $91 per barrel.

But, the East Coast’s refining capacity, which affects the supply of gasoline, has been tremendously cut in the last several months. Near Philadelphia, for example, two refiners which produce one-fifth of the Northeast’s gasoline have closed. Andy Lipow, an energy analyst based in Houston, says that the shutdowns of the refineries in Europe and Asia have reduced the market’s gasoline supply by around 2.6 million barrels since 2009.

Refiners in the East Coast import a majority of their oil supplies from West Africa and Europe. Crude oil prices of North Sea Brent crude have increased to more than $125 per barrel. Crude prices of Light Louisiana oil on the Gulf Coast climbed to around $130 per barrel recently because of limited supplies of West African and European crude blends.

Costs of gasoline and wholesale oil have been sharply increasing all over the United States in the last several days, says Kloza. At this rate, if gasoline prices increase in a similar rate as February, prices at the pump may reach record breaking levels even prior to the start of the summer season.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

Facebook Twitter LinkedIn Google+ YouTube